Taiwan’s Number-one Concern: Electric Power

Progress in developing renewable energies has been slower than targeted, but the pace is now expected to quicken.

Among the Five Shortages identified by Taiwan’s Chinese National Federation of Industries (CNFI) and currently being addressed by the government in a series of policy initiatives, electrical power is seen as the most crucial.

Taiwan’s generating capacity has actually declined in recent years as older coal- and oil-fired power plants have been retired. With the Jinshan Nuclear Power Plant (NPP1) already shuttered due to the inability to refuel two years before schedule, along with the suspension in 2014 of the Lungmen project (NPP4) that was expected to generate as much as 15% of Taiwan’s total power needs, the state-owned Taiwan Power Co. (TPC) has struggled to meet demand for the past two years during the hot season (from May until late fall). Reserve margins, spare capacity that can be brought online in a relatively short time to meet surges in demand or compensate for breakdowns, have repeatedly fallen to less than 2%.

On August 15 last year, the country experienced a blackout that resulted in nearly half of the island losing power. Although the specific cause of the incident was human error at the Datan natural-gas power plant in Taoyuan, lack of sufficient reserve prevented TPC from making up for the sudden shortfall. Industry and business associations, including the American Chamber of Commerce in Taipei, have joined CNFI in calling on the government to take action to ensure that Taiwan’s power supply remains reliable, sufficient, and affordable.

“Power is a critical issue in terms of potential for disruption,” says Stephen Su, General Director of the Industrial Economics and Knowledge Cener at Taiwan’s public-private Industrial Technology Research Institute (ITRI). “There will be a period this year when supplies are tight, but after that it will improve.”

President Tsai Ing-wen’s administration has vowed to eliminate nuclear power from the island by 2025 while simultaneously cutting back sharply on the use of coal in power generation so as to reduce carbon emissions. Meeting those twin objectives will require a major transformation in Taiwan’s energy mix.

Wind turbines can be seen in many locations along the Taiwan coastline, and plans call for even more to be installed offshore. Photo: Matthew Fulco

By 2025, the government aims to generate 20% of Taiwan’s electricity from renewable sources, including 20 gigawatts (GW) of solar power and 3.5GW of offshore wind power. Currently roughly 5% of Taiwan’s power is generated through renewable sources – almost entirely conventional hydroelectric power that has been operating for decades.

Nuclear power, which until 2014 generated some 19% of TPC’s electricity, has decreased in recent years and now accounts for about 10%. TPC relies on coal for about 45% of the power generation and natural gas for around 35%.

Given the lack of further sites for hydro, the additional renewable power will come almost entirely from solar and wind sources. Input from other sources such as biomass and waste power is negligible, and small pilot projects have been launched for geothermal plants.

Making progress on the renewable energy front is proving more challenging than the government may have anticipated, although many experts have long cautioned that the goals were overly ambitious and could expose Taiwan’s vital industrial sector to considerable risk.

Darson Chiu, an economist with the Taiwan Institute of Economic Research, calls the timetable for Taiwan’s energy transformation an “impossible goal” and says that “nobody trusts that the government can give up nuclear power so quickly.” ITRI’s Su, in contrast, sees the 20% goal for renewable power generation as achievable, especially in view of what has already been attained in some other markets.

Solar behind schedule

So far, however, Taiwan has failed to meet its short-term goal for additional solar energy capacity, despite declarations by some government officials that the target had been achieved. In the summer of 2016 the administration promised that another 1.52GW of solar PV would be installed by mid-summer 2018. Currently Taiwan is at roughly 1.9GW level, but when the goal was set some 900MW had already been installed. To have achieved the goal, Taiwan should now have over 2.5GW of installed solar. Industry analysts estimate that Taiwan managed only to add around 500MW (0.5GW) of solar capacity last year.

A variety of factors has caused these delays, but lack of industry interest isn’t one of them. International and local solar installers and supply chain partners are eager to take advantage of Taiwan’s Feed-in-Tariff (FiT) for solar power generation, currently the highest in the world. The FiT is the rate that a renewable energy provider is paid by the government or utility per kilowatt hour (kWh) under a long-term Purchasing Power Agreement, typically 20 years. The FiT guarantees that the government will continue to pay this rate according to the contract terms. Small rooftop installations (up to 20 kW) currently enjoy an FiT of NT$5.8744 (US$0.202)/kWh, with the rate due to go down as scale expands.

The cost of solar power has plummeted in recent years due to the maturation of the technology and the ascent of the Chinese solar manufacturing industry, and the world is moving away from FiTs towards other forms of incentives, including auctions and tax credits. Taiwan is likewise moving in that direction and already has a form of reverse auction in which developers compete on the amount of the FiT they will rebate back to the government. Last year the Singapore-based Equis Fund won a bid to develop a 30MW installation in southern Taiwan for NT$3/kWh, but industry observers are skeptical that this project, which has yet to be started, will be completed.

Visitors to rural Yunlin or Changhua County will find nearly every third roof covered in solar panels. But overlapping jurisdictions and competing priorities have led to disputes over land use for solar power plants, with the Council of Agriculture (COA) seemingly reluctant to release even marginal or non-productive farmland for use for solar. Entrepreneurs are experimenting with simple and cost-effective ways to integrate agriculture and solar power in the same fields, but so far the installation of ground-mounted (as opposed to rooftop) systems – essential for largescale solar development – continues to lag.

Running transmission lines to connect all these distributed solar farms and windmills likewise faces hurdles in the form of extensive environmental impact assessments. Another environmental issue is that the COA has set aside “salt lands” – land that has subsided due to overuse of ground water and the gradual collapse of the water table – for use for solar development. However, some of these projects have been halted because many of these same waste lands are vital habitats for rare, migratory birds.

Rhea Tsao, a solar analyst for EnergyTrend, a division of industrial-research organization Trendforce, says that solar power development runs into an array of regulatory obstacles, but that development is nevertheless progressing. “Some of the land is being developed, and some will be developed later in the year, and some will be canceled because of environmental or biodiversity issues,” she observes. But despite slow progress so far, she says that solar power development is on track and forecasts a big uptick in the second half of 2018.

Offshore wind power faces its own series of challenges. The scale of each turbine is huge. A 6MW or 8MW generator sits atop 90 meters of foundation and mast, with blades of 120 meters in diameter. Building such large structures takes time. Globally the industry has been concentrated in northern Europe, and while welcoming foreign participants the Taiwan government wishes to ensure that domestic companies also have a substantial role to play. Offshore wind developers such as the Danish company Ørsted are in negotiations with local suppliers and partners, but questions remain about the capacity of local firms without much experience in the sector. To meet the 2025 deadline Taiwan will need to build almost 600 offshore installations. To date it has two.

Handling all of this intermittent renewable energy will also require TPC to invest some NT$900 billion (about US$30 billion) in grid upgrades as well.

Difficult decisions

To ensure that Taiwan maintains sufficient power, the government in recent weeks has made some hard choices that signal that it is taking the concerns of industry seriously. Reactor 2 of Guosheng nuclear power plant (NPP2) was approved for restart by the Atomic Energy Council (AEC) under the Executive Yuan as well as by the Legislative Yuan. The reactor had been shut down for repairs following a fire in a circuit breaker in May 2016.

In addition, construction of an ultra-supercritical coal-fired power plant to replace a plant retired in 2007 at Shenao, in Rueifang District of New Taipei City, was approved by the Environmental Protection Administration (EPA) after passing its Environmental Impact Assessment (EIA) through a tie-breaking vote cast by EPA Deputy Minister Thomas Chan. Further, electricity rates, which had been around NT$2.5 per kWh, were raised 3%.

The Guosheng and Shenao developments were quickly condemned by anti-nuclear and environmental groups, as well as the opposition Kuomintang (KMT) – despite the KMT’s support for the idea of a restart at Guosheng when it was the ruling party. KMT legislators also called for Deputy Minister Chan’s resignation over the EIA vote, even though the Shenao coal-fired plant had been proposed during the presidential administration of the KMT’s Ma Ying-jeou.

The 985MW reactor-2 at Guosheng should contribute considerably to Taiwan’s power supply, particularly in the north where power demand is highest and shortages most pronounced. Yet the restart on March 29 did not go smoothly when issues with a sensor forced a shutdown.

If the reactor fails to be restarted successfully or the government succumbs to opposition to the restart, Taiwan could face serious power supply issues as early as next month. The Shenao power plant will likely take a decade to complete, offering no immediate relief.

On the conventional side of the power supply, Taiwan aims to reduce air pollution by reducing coal-fired power generation from the current 40-45% to 30%, and raising natural-gas power generation to 50%, from its current 40%.

The world is currently awash in cheap and abundant natural gas from a variety of new sources, including Australia but especially the United States. Plans to substantially increase natural-gas power generation have been clouded by major uncertainties due to difficulty finding a site for a new liquefied natural gas (LNG) receiving terminal capacity. Taiwan must import all of its natural gas as LNG, which requires special conditions for transport and storage.

Questions still remain over whether Taiwan will have sufficient capacity to supply its future natural gas needs.

ITRI’s Su nevertheless remains optimistic that, even if the goals are not met exactly as planned or on schedule, efforts are heading in the right direction. But he cautions that policy stability is vital to ensuring that Taiwan’s economy can adapt to the changes.

“In the past Taiwan has tended to be very resilient and industry quite nimble, provided the overall direction is clear,” Su says. “We should be okay as long as the policy pendulum doesn’t swing very far.”

Taiwan Business TOPICS

Taiwan Business TOPICS is published monthly by the American Chamber of Commerce in Taipei, and covers current topic affecting business conditions in Taiwan, an Industry Focus section on a particular industrial sector, and other reports prepared by the magazine’s staff of experienced professional journalists.